Used cooking oil (UCO) futures contract: frequently asked questions

What is used cooking oil and how does it fit into the renewable energy supply chain?

Used cooking oil (UCO) is an increasingly important feedstock for the production of renewable diesel and sustainable aviation fuel – making it a key component in renewable energy solutions. Government-backed incentives and mandates mean that UCO is in high demand as a feedstock in alternative fuels, given the global shift toward more sustainable and lower-carbon energy sources.

UCO’s price trends can signal the health of the biofuel market, as demand for cleaner energy sources continues to rise.

Production of UCO-based biodiesels has surged in recent years, with more sources collecting and refining waste-based cooking oils. Monitoring UCO prices helps market participants understand supply-demand dynamics and assess competitiveness in the renewable fuels industry among a range of competing feedstocks and allows them to manage risk associated with sudden price movements.

What are futures contracts, how do they work, and why are they important for the market?

Futures contracts are standardized, legally binding financial agreements to buy or sell a specific underlying asset at a predetermined price at a future date. Traded on exchanges, these contracts provide ways to hedge against price volatility, speculate on price trends, and manage risk. Futures markets are platforms for price discovery, risk management, and speculation on a wide range of assets.

What is the new futures contract announced by Fastmarkets and ICE today?

On November 1, the Intercontinental Exchange (ICE) announced the launch of US Gulf Coast Used Cooking Oil (Fastmarkets) Futures contract, which will be underpinned by Fastmarkets
physical US Gulf Coast Used Cooking Oil assessment. This contract is due to launch on December 9th, pending regulatory review. You can find the contract quoted on the ICE Futures listings here.

What is the difference between physically delivered and cash-settled futures contracts?

In physical delivery, the underlying asset is transferred upon contract expiration, whereas in cash settlement, the obligation is settled through cash payments based on price differences. The ICE Fastmarkets UCO futures contract is cash-settled, which is ideal for market participants seeking exposure to UCO price movements without the need for physical delivery.

Why is it the right time to launch a UCO futures contract?

UCO has gained significant attention as a renewable fuel feedstock. The market is evolving with increased volumes and more stakeholders entering the space. The UCO price is highly sensitive to changes in feedstock availability, government legislation and biofuel demand, making this futures contract a timely tool for those seeking effective risk management in the renewable energy market.

Spot trades feed into Fastmarkets’ prices, which are also referenced in physical contracts, ensuring convergence between the futures price and the spot price at expiry.

Who should be interested in the launch?

This contract will be useful for a wide range of participants across the biofuel supply chain, including feedstock suppliers, refiners, traders, financial institutions and biodiesel producers. Each group can contribute to market liquidity, engage in risk management, and facilitate price discovery.

Why should they be interested?

Participants will be able to use the UCO futures contract to directly manage their price exposure to used cooking oil, a historically challenging process. As biofuel markets continue to evolve, market participants need to protect against potential price fluctuations. This contract will support price stability and cash flow management. Moreover, it will help deepen liquidity and transparency in the UCO and broader biofuel feedstock markets.

Why is Fastmarkets’ used cooking oil assessment Gulf-based?

The Gulf price benchmark reflects the primary market region for UCO trade. This standardization allows Fastmarkets to capture the broadest data pool. Fastmarkets’ UCO Gulf, spot price assessment accepts all volumes that meet the quality standards required by regional biofuel refineries.

What is the methodology behind Fastmarkets’ UCO spot price assessment?

Fastmarkets’ used cooking oil Gulf spot price is a daily price assessment following the Fastmarkets’ pricing calendar. It adheres to IOSCO principles and undergoes annual IOSCO audits to ensure high standards in price reporting. The assessment process involves expert reporters who collect data on spot trades, bids, offers and cross-check rumoured deals or movements in related commodities. Data are analyzed and reviewed through multiple stages before publication to ensure transparency and accuracy.

A detailed explanation of Fastmarkets’ methodology for UCO and other biofuel assessments can be found here.

Who can I reach out to if I have further questions?

For more details, contact marketdevelopment@fastmarkets.com